How to use the Treasury Bill Yield
- Enter the face value you will receive at maturity, usually $1,000 per bill.
- Enter the price you pay today, which is always below face value.
- Enter the days remaining until maturity.
- Compare the bond equivalent yield, since that is what makes a bill comparable to a CD or note.
- Use the effective annual yield when comparing against a compounding account.
How the calculation works
Treasury bills pay no coupon. You buy below face value and receive face value at maturity, and the gain is the entire return. Because there is no coupon to reinvest, the quoted yield depends entirely on which convention is used — and the Treasury quotes bills on the bank discount basis, which is the least intuitive of the three.
The discount rate divides the gain by face value and annualises over a 360-day year. Both choices understate the true return: the gain should be measured against the money actually invested, which is the lower purchase price, and the year has 365 days. The bond equivalent yield fixes both, dividing by price and annualising over 365, which is why it is always the higher number and the one to use in comparisons.
The effective annual yield goes one step further and assumes the proceeds are reinvested at the same rate, compounding the return across the year. For a bill maturing in under a year it exceeds the bond equivalent yield slightly. Note also that treasury interest is exempt from state and local income tax, which can add half a point or more of effective yield for a high-tax-state investor comparing against a bank CD.
Discount rate = ((F − P)/F) × (360/days); BEY = ((F − P)/P) × (365/days); EAY = (F/P)^(365/days) − 1Source: U.S. Treasury, 'Treasury Bills: Rates & Terms' and 31 CFR Part 356 Uniform Offering Circular; SIFMA standard yield conventions.
Worked example
A 182-day bill with $1,000 face bought at $975.
- Gain = 1,000 − 975 = $25.
- Discount rate = (25 ÷ 1,000) × (360 ÷ 182) = 4.945%.
- BEY = (25 ÷ 975) × (365 ÷ 182) = 5.142%.
- EAY = (1000/975)^(365/182) − 1 = 5.209%.
A 5.142% bond equivalent yield — nearly 0.2 points above the quoted discount rate, which is why the convention matters when comparing to a CD.
Frequently asked questions
Why is the discount rate lower than the actual yield?+
It divides the gain by face value rather than the price you paid, and uses a 360-day year. Both conventions shrink the number.
Are treasury bills taxed?+
Interest is subject to federal income tax but exempt from state and local tax, which raises the effective yield for investors in high-tax states.
How do I buy treasury bills?+
Directly at auction through TreasuryDirect, or on the secondary market through any brokerage. Minimums are $100 at auction.
Do bills pay interest during the term?+
No. They are pure discount securities: you pay less than face and receive face at maturity, with no coupons in between.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.